Crispin Murray: this week’s outlook for Aussie stocks

Pendal's head of equities Crispin Murray


Here are the key factors influencing Aussie stocks this week, according to Pendal’s head of equities Crispin Murray (pictured above). Reported by portfolio specialist Chris Adams.


RISING Covid numbers in the US and Europe and further uncertainty over a US fiscal package have not deterred the local market.

The S&P/ASX 300 made strong gains last week, rising 5.4% to bring the calendar year-to-date return to -6.2%. The S&P 500 was up 3.9%.

At this point investors seem content that the resurgence in cases is not denting activity and economic recovery remains in place.

A raft of stimulus in the federal budget served as a reminder that policy makers remain ready to step in to underpin the economy.

We are mindful that fund flows reflect a generally cautious mindset from investors. This also remains supportive for equity markets.

Covid data

New case trends continue to deteriorate in the US and in Europe. The seven-day average of daily new cases in the US has returned to about 50,000 compared to about 35,000 in early September.

The positivity rate and hospitalisations have also gradually picked up in recent weeks. This has not yet fed through to mortality rates, but the lagged effect and onset of cold weather is expected to drive an increase here too in coming weeks.

Most US states are seeing an increase in new cases. The biggest increase has been in New York despite moderate restrictions which remain in place there.

Europe also continues to deteriorate, but as with US this is not translating into excess strain on the health system so far.

Most importantly there is no evidence in either location that the increase in cases is affecting general economic activity levels. The recovery remains in place. This is the key aspect to watch, as any shift in expectations here could be material for markets.

Australia remains far better positioned than Europe and the US despite some setbacks last week.

Economic data and policy

The Australian federal budget was stimulatory, as expected. On balance, the scale of injection was probably a touch larger than consensus was looking for.

Key elements included:

– Bringing forward personal tax cuts, worth $7 billion in FY21 and $17 billion across FY21-22. Importantly, the cuts are retrospective which means the flow-through will commence straight away. This is positive for retail spending.

– Income support payments ($2.6 billion).

– New worker subsidies. This is worth $4 billion, but benefits should flow through in FY22-23, so this is not as immediate in impact.

– Additional infrastructure spending worth $9.7 billion. Again, this is spread over four years so it’s not as immediately beneficial in its full scale. However the “use it or lose it” directive to states should help accelerate projects.

– Accelerated investment allowances worth $26.7 billion through FY23-24. This investment would probably have occurred anyway, but brings it to the front end to help kick-start confidence.

The scale of measures, which will drive the budget deficit close to 12%, demonstrates the willingness of policy makers to underpin the economy.

The shift in mindset away from fiscal prudence and balance budgets is material and suggests there is more the government can do if required.

At this point the constraint on fiscal stimulus is either rampant inflation or loss of confidence in government credit. Neither factor is in play right now.

On the data side there were signs of a pick-up in Australian payrolls, which had been dragged down by Victoria since July. Overall unemployment is expected to peak at 8% compared to compared to the previous prediction of 10%.

Globally, data continues to indicate the recovery has not been affected by a rise in cases.

Leading indicators of GDP and corporate sentiment continue to rise. German retail sales have surged well above pre-Covid highs.

Global fund flow data continues to show net cumulative outflows out of equity funds and into bond funds. We see this as supportive for equity markets. Sentiment is a long way from euphoric despite the rapid rebound.


Equity markets were strong last week despite rising Covid cases. The prospect of a fiscal deal in the US prior to the election seems to be receding.

Senate Republicans seemingly do not want to complicate the process of installing a conservative Supreme Court justice prior to the election.

The bookies still have Biden at a 65% chance of a win, while the odds of a Democrat sweep – taking both the White House and a Senate majority – are now at 60%.

There is a view emerging that such a sweep could see the Democrats expand their current proposal to a figure north of US$2.5 trillion. This may explain the market’s seeming sanguinity on the issue of fiscal stimulus.

Commodity prices reflected a sunnier outlook for global growth. Brent oil rose 9.1%, iron ore 2.4% and copper 3.4%. Gold was up 1%. US bond yields are testing the upper range of their recent trading range.

All sectors in the S&P/ASX 300 made gains. The key laggards were defensives – particularly those bond-sensitive ones.


Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and a strong track record leading Australian and European equities funds. He manages a number of our flagship funds along with one of the largest equities teams in Australia.

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